Depreciation Analysis: Depreciation is the term used for the decline of an object value over time. Krispy Kreme’s depreciation is calculated using the straight line method. Benefits from asset are more likely to be constant over its live, thus making straight line method of depreciation more appropriate as it results in a constant annual depreciation change. Krispy Kreme uses SFAS-142 for accounting of intangible assets. Per this method intangible assets identified with an indefinite life are not amortized and now are subject to an impairment test. Use of SFAS-142 results in more volatility in reported income as impairment losses may occur irregularly and in varying amounts. A possible explanation for the difference is amounts is that Krispy Kreme may have acquired plant assets for a note to pay later, another possible explanation is Krispy Kreme disposed of some plant assets at a loss during the year. Company Stock Analysis:

The No of common shares outstanding increased from 54,271 thousand to 56,295 thousand in 2003, a rise of 3.73%. For 2003, the weighted average common shares used were 55,093 and for 2002 were 53,703. For both years the shares outstanding at year-end were slightly higher than the average shares outstanding during the year. As of February 3, 2003 Krispy Kreme did not hold any treasury stock. Krispy Kreme also has no preferred stock or outstanding. No cash dividends were paid to common stockholder’s for fiscal years 2003 and 2002. This indicates that Krispy Kreme’s stock is a “Growth Stock” and explains why it has not paid any dividends. Krispy Kremes basic earnings per common share figure have consistently grown over this 3 year period. The 2003 amount is considerably larger than the prior years. This could have improved more if not for the higher than proportional increase in depreciation and the amortization for the arbitration award in 2003. In...

...KrispyKreme Doughnuts, Inc.
Depreciation Analysis:
The company is adhering to SFAS 142 in accounting for its Intangible Assets. In this, intangible assets that are identified with a limited life are no longer liquidated but are subject to an impairment test. Using the straight-line method in depreciation is how property and equipment is calculated. The straight-line depreciation method divides the cost by the life of the asset which is why I believe this method to be reasonable. Since assets are resources that a business uses to generate revenues then this depreciation method best matches expenses with revenues.
“Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives: Buildings— 15 to 35 years; Machinery and equipment—3 to 15 years; Leasehold improvements— lesser of useful lives of assets or lease term.” (Larson, Wild, and Chiappeta)
“In July 2001, the FASB issued SFAS No. 142….Goodwill and some intangible assets will no longer be amortized, but will be reviewed at least annually for impairment…the provisions of SFAS No. 142 may result in more volatility in reported income as impairment losses may occur irregularly and in varying amounts.”
Company Stock Analysis:
Krispy Kreme’s balance sheet shows that 10,000 shares of preferred stock has been authorized, but none has been issued. The number of Common Stock Shares Outstanding have increased from 54,271...

...KrispyKreme Doughnuts
Question 1: Analysts are predicting that KrispyKreme will be able to perform highly effectively and continue to grow rapidly in the coming two years. Do you agree with their analysis? If so, why? If not, why not?
Key factors underlying growth:
1. Brand based on high quality product, highly differentiated products, high-volume production
2. Fragmented (regional) competition with less brand recognition
3. Strong opportunities to extend network of stores geographically.
4. Great steps to insure customer satisfaction from the use of their proprietary flour recipe to their automated doughnut making machines.
Question 2: What factors did the CIBC analysts examine to forecast sales growth for KKD in the years ended January 2003 and 2004? What assumptions did they implicitly make about number of new stores and weekly sales per store (for both company and franchise stores)? What are their implicit assumptions about revenue growth from franchise operations and KKM&amp;D? Do you agree with these forecasts?
Revenue Forecasts
The CIBC analysts’ forecasts were constructed using per store information.
* Company plans to add 62 new stores in 2003, mostly through area developers.
* Revenues per new store: Initial boom, followed by leveling off. Also, not all new stores are open for full year.
* Revenue growth per new store has been impressive. Franchise store revenue...

...the environment of KrispyKreme and my analysis as to what led to the company’s position in 2004. Second, I will discuss the financialhealth and current condition based upon the historical income statements and balance sheets. Third, I will discuss the financial ratios in relation to the financial statements. Fourth, I will discuss if KrispyKreme was financially healthy at the end of 2004. Fifth, I will discuss my assessment of Krispy Kreme’s health and why I think the stock price dropped by 80% between 2003 and 2004. Sixth, I will discuss why I think the market reacted so
negatively to the disclosures about adverse results and the revelations in the Wall Street Journal regarding the firm’s accounting methods for the franchise rights. Lastly, I will provide my recommendations for turning around KrispyKreme Doughnuts’ business.
COMPANY POSITION
KrispyKreme Doughnuts started small by selling directly to grocery stores. Their doughnuts became so popular they began selling directly to customers. They sold a delicious doughnut and a viewing experience. When Beatrice Foods bought the company, her business model did not succeed because it expanded the product line in the opposite direction of what consumers wanted and she inputted cheap ingredients into a popular recipe...

...﻿KrispyKreme started as a single doughnut shop in 1937 when Vernon Rudolph acquired the special recipe from a French chef. Very quickly, the doughnuts rose in popularity and the number of shops expanded. By April 2000, after the IPO KrispyKreme shares were selling for 62 times earnings. KrispyKreme had a share price of $40.63, which gave the firm a market capitalization of about $500 million. Since the IPO the company had announced an aggressive growth strategy, in which they planned to increase the number of stores from 144 to 500 over five years and also grow internationally. In order to generate revenue, KrispyKreme Doughnuts had four primary sources: On-premises sale (27%), Off-premises sales (40%), manufacturing and distribution (29%) and franchise royalties and fees (4%).
KrispyKreme, once known as the “hottest brand in America,” had taken a turn for the worse when they announced adverse results in May 2004. This could have been potentially attributed to the recent low-carbohydrate diet trend in the U.S. Following this downturn, things got even worse for KKD when the Wall Street Journal published a story about the companies aggressive accounting strategies in regards to their franchise acquisitions. KrispyKreme recorded the interest paid by the franchise as interest income, which was immediate...

...KRISPYKREME DOUGHNUTS, INC.
Teaching Note
Synopsis and Objectives
This case considers the sudden and very large drop in the market value of equity for KrispyKreme Doughnuts, Inc., associated with a series of announcements made in 2004. Those announcements caused investors to revise their expectations about the future growth of KrispyKreme, which had been one of the most rapidly growing American corporations in the new millennium. The task for the student is to evaluate the implications of those announcements and to assess the financialhealth of the company. This case is intended to be introductory as it can provide a first exercise in financial statement analysis and lay the foundation for two important financial themes: the concept of financialhealth, and the financial-economic definition of value and its determinants.
Suggested Questions for Advance Assignment to Students
1. What can the historical income statements (case Exhibit 1) and balance sheets (case Exhibit 2) tell you about the financialhealth and current condition of KrispyKreme Doughnuts, Inc.?
2. How can financial ratios extend your understanding of financial statements? What questions do the time series of...

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KrispyKreme Doughnuts Case |
Seminar in Finance |
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Gregory Steigerwalt |
4/17/2012 |
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KrispyKreme Case – Discussant
Krispy Kreme’s rapid expansion may have been the reason for its rapid fall. Recently becoming a publicly traded company in April 2000, KrispyKreme shares had seen amazing growth as they were selling for 62 times earnings. Naturally, this created a buzz around Wall Street, and an “obsession” with KrispyKreme began as it became one of the hottest stocks on the market. Yet, analysis of the fundamentals of KrispyKreme needed to by analyzed to see the true threats the company had brought upon itself.
Analysis of Krispy Kreme’s business model and strategy gives a good insight as to how the company had become so successful. Within their revenue generation, KrispyKreme had four main sources: on-premise sales (27%), off-premise sales (40%), manufacturing and distribution of product mix and machinery (29%), and franchise royalties and fees (4%). Taking a quick snapshot of these percentages, we find that roughly 67% of their revenue comes from selling their finished product with the remainder coming from producers/owners.
The nature of these revenues may be part of the reason for the fall of KrispyKreme. An...

...FINANCIAL PLANNING
First Trimester, SY 2012-2013
FEU–MBA
Prof. Raymond Queddeng
THE THREE CASH FLOW ANALYSIS
Submitted by:
Group 1
Rebecca Capricho
Agnes Masiglat
Rosalia Simborio
Victorino Samarita
Edwin David
I. Statement of the Problem:
1. Determine for each of the years on the Consolidated Statements of Cash Flows of Alpha, Beta, and Gamma Corporation the following:
a. Each firm’s major sources and uses of cash
b. Positive/Negative Variance between Cash flow from operations and net income. Major reasons for the variance.
c. Was the firm able to generate enough cash from operations to pay all of its capital expenditures?
d. Did the cash flow from operations cover both the capital expenditures and dividend payments, if any?
e. If it did, how did it invest the excess cash?
f. If not, the sources of cash to pay for the capital expenditures and/or dividends.
g. Were the working capital (current asset and current liability) accounts other than cash and cash equivalents primarily sources of cash, users of cash?
h. Other major items which affected cash flows
2. Firm’s Trend in the following:
a. Net Income
b. Cash Flow from continuing operations
c. Capital Expenditure
d. Dividend
e. Net Borrowing
f. Working Capital Account
3. Assessment of the financial strength of the firm’s business...